It may be a few years away, but getting organized now will help you when it comes time to start repaying your student loans.
Not paying your bills on time can have a devastating effect on your credit score which, as you’ve read, means paying higher interest rates on credit card balances, auto loans and student loans. Here’s a list of other areas affected by a poor credit score.
Imagine your roommate, who you’ve known for less than a month, asks to borrow $20 from you. What information would you want to know before loaning the money? If your friend had a history of always making good on his promises, you might feel reassured and loan the money. However, if you knew that he had already taken multiple loans from other people, none of which he’d paid back, you may think twice before handing over the money.
A credit history and score is not much different than this. It is your borrowing track record. A credit history helps lenders assess risk when examining your candidacy for a loan. There is not just one credit score. Numerous companies produce credit scores based on their own scoring models (Fair Issac, Experian, TransUnion, to name a few). Therefore, you cannot compare scores across the board.
In order to have a strong credit history and high credit score, we recommend the following:
You are ultimately responsible for the accuracy of your credit report, so it is important that you check yours at least once a year.
You are entitled to one free credit report each year from each of the three major credit reporting bureaus: Experian Inc., Equifax and TransUnion LLC. These three bureaus are separate companies and do not share information with each other, so each credit report may be somewhat different – you should check all three. You can request them via the Internet at www.annualcreditreport.com.
Remember, credit bureaus are required by law to explain information in your credit report that you do not understand. The credit bureau that supplied the report is required to answer your questions by telephone. Call during off-peak hours for faster service.
Credit reports often contain mistakes, which could hurt your credit rating and mean you’ll pay higher interest rates, more points on a home mortgage or even be denied credit. While credit bureaus are legally responsible for reporting accurate information, you must bring any errors to their attention.
Common errors include:
There is a big difference between incorrect information and negative information. As long as negative information is accurate, it will remain on your credit report. Beware of “credit repair” companies that make misleading promises to “clean up” credit reports or erase bad credit.
To dispute incorrect information, you must send a letter to the credit bureau that clearly explains the error. Include photocopies of supporting documentation. Once the credit bureau receives your request, it has 30 days to investigate it and respond to you.
Here are some more tips for solving credit report problems: